Oil weighs positive China data against U.S. fiscal cliff

Approaching the Cliff

The oil market is trying to balance the risk of the U.S. going over the fiscal cliff vs. stronger data out of China and the possibility that the recent Greek bailout drama may have a bullish ending. Over the weekend it seemed like both the Democrats and the Republicans were digging in their heels in a game of fiscal chicken wondering if anyone will blink as we draw closer to the cliff.

Yet on the demand side we should see rising expectations as China’s manufacturing sector seemed to be turning the corner. The Chinese Manufacturing Purchasing Managers' Index came in at 50.5 in November according to a report released by HSBC. That is a 13 moth high and a good sign for oil demand. Bloomberg reported that China may maintain its annual economic growth target at 7.5 percent next year in a sign the new leadership headed by Xi Jinping won’t tolerate a bigger slowdown.

Signs that Greece may get its bailout also are helping support oil. Reuters reported that Greece would spend €10 billion to buy back bonds in a bid to reduce its ballooning debt and unfreeze long-delayed aid, setting a price range above market expectations to ensure sufficient investor interest. The bond buy-back is central to the efforts of Greece's foreign lenders to put the near-bankrupt country's debt back on a sustainable footing, and its success is essential to unlocking funding Athens needs to avoid running out of cash.

At the same time German Chancellor Angela Merkel said that maybe, just maybe, in a couple of years, it will be reasonable to write off some amount of existing Greek debt. A sign of softening that could show that the Germans are open to debt forgiveness or more delicately put, an orderly default.

Oil also continues to get a bid from concerns over the worsening situation in Egypt. Reuters reports that, “Protests by Islamists allied to President Mohamed Mursi forced Egypt's highest court to adjourn its work indefinitely on Sunday, intensifying a conflict between some of the country's top judges and the head of state. The Supreme Constitutional Court said it would not convene until its judges could operate without "psychological and material pressure", saying protesters had stopped the judges from reaching the building. Several hundred Mursi supporters had protested outside the court through the night ahead of a session expected to examine the legality of parliament's upper house and the assembly that drafted a new constitution, both of them Islamist-controlled. The cases have cast a legal shadow over Mursi's efforts to chart a way out of a crisis ignited by a Nov .22 decree that temporarily expanded his powers and led to nationwide protests against him and his Muslim Brotherhood group. The court's decision to suspend its activities appeared unlikely to have any immediate impact on Mursi's drive to get the new constitution passed in a national referendum on Dec. 15.

About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

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